Lawyers representing a shrinking group of banks suing bond insurer MBIA Inc. have asked its regulator for an independent evaluation of the insurer's financial condition, as the four remaining banks push on with a legal fight over MBIA's 2009 business split.

In a Jan. 11 letter to Benjamin Lawsky, who heads the New York State Department of Financial Services, the banks' lawyers requested that a "qualified independent expert" be retained to analyze expected losses from insurance MBIA sold on subprime mortgage debt and other complex securities.

The lawyers, from Sullivan & Cromwell LLP, also asked the department to "take any appropriate action based on the results of that independent analysis." The banks still battling MBIA are Bank of America Corp., UBS AG, Societe Generale SA and Natixis.

The banks previously asked Lawsky for a similar review last year, but didn't get a public response. Lawsky's office had no comment on the matter.

The number of banks locked in a legal battle with MBIA and its regulator has dropped sharply over the past year, after banks including Morgan Stanley and BNP Paribas SA reached settlements with the Armonk, N.Y. insurer. MBIA in 2009 separated its profitable municipal bond guarantees from its money-losing portfolio of structured-finance securities, hurting firms that hold insurance on the latter. The split was at the time blessed by New York State's insurance department, which became part of the new Department of Financial Services under a new regulator last fall.

As MBIA has continued to pay claims on soured securities, and also paid out significant sums as part of settlements with individual banks, the banks contend that those institutions still exposed to the insurer may be disadvantaged because MBIA has less money to pay them.

Last month, MBIA agreed to pay Morgan Stanley $1.1 billion to end litigation between the two firms. In their letter, the remaining banks noted that before the settlement, the insurer's reported surplus was only $1.3 billion, and questioned MBIA's assumptions of its solvency and how it is funding the settlement.

The banks have alleged the MBIA insurance unit they would receive claims payments from "is insolvent and rapidly depleting its limited remaining capital," their letter said. They said an independent review would determine whether the insurer can meet all its obligations to policyholders, and whether it should continue to pay millions of dollars in executive compensation.

MBIA has argued it is financially sound and can meet all its obligations, many of which only come due years in the future. A spokesman for the insurer said the banks' letter "conveniently ignores the fact that MBIA has continued to pay all of its claims" and made payments to 14 banks that were previously in the lawsuit.

If settlements aren't reached between MBIA and the remaining banks, the case is expected to go to trial in a New York state court this year.

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